For many Birmingham industrial occupiers, business life is stuck on hold as the search for new premises gets nowhere fast.
Picture the scene. You are a food manufacturer in Small Heath, Birmingham. You are in several small, old units – and you need to be in one bigger, new unit. The trouble is that food manufacturing requires huge fit-out costs and if you are going to invest on that scale, you need to buy. So, what do you do?
Solving this puzzle occupied two years of the life of Yan Lui, managing director of Tofu King UK, until last month when it purchased a 20,226 sq ft unit for £920,000, located close to junction 6 of the M6 motorway.
“Landlords would tell me they were open to a freehold or leasehold deal, but always preferred to take the tenant than to sell to us,” says Lui, who broke turnaround records when she saw the unit at Birmingham’s Cheston Road. The deal was sorted within four weeks.
Down the road at Erdington’s Gravelly Industrial Park, Neil Rapley, managing director of Systemair, the former owner of the Cheston Road unit, is also celebrating the end of his long property journey.
Systemair signed up for 44,000 sq ft at a rent of £6.50 per sq ft at Gravelly, with Standard Life Investments Pooled Pension Property Fund.
“We could have got more money for the old Cheston Road unit, but it would have meant waiting for longer,” says Rapley, simply happy to get to the end of the story. “It wasn’t easy finding our new premises. We wanted to be close to Cheston Road, and wanted about 5,000 sq ft of offices, but everything we looked at offered a lot less office space, or too much, we had to be more tolerant on pricing.”
Happy ending
An everyday story of the property chain? This one had a happy ending for both Tofu King and Systemair – but for many Birmingham industrial occupiers, business life is stuck on hold as the search for new premises gets nowhere fast.
Justin McVeigh, surveyor at Savills, says the Cheston Road story is “pretty typical”. He points to a 130,000 sq ft requirement in Coventry that has taken two years to resolve. “We’ve seen very little smaller space developed since 2007. It means the scope for growing and upgrading premises is very limited for the kinds of smaller occupiers for whom design-and-build does not work.”
Standard Life’s £10m plus investment in refurbishment and rebuilding at Gravelly has limited competition, “but there’s not a lot of others,” says Savills director Christian Smith. A handful of 10 acre plus sites are a “drop in the ocean,” he says. Rents now hovering around £6.50 per sq ft for smaller units will be touching £7 by the end of the year, Smith predicts.
Birmingham City Council is on the case. The £350m Peddimore development will take 150 acres of the green belt ahead of a 3m sq ft scheme.
Praised
The long awaited and much praised move still has political hurdles to overcome but the vision document, launched in Cannes last month at MIPIM, promises a development to match Birch Coppice.
Simon Lloyd, director at Cushman & Wakefield, is an enthusiast for Peddimore. But he thinks it is not enough on its own. “Peddimore is really good news. It’s a significant parcel, in the right area, with good access for labour and no site remediation required. But it’s not enough, and it’s difficult to see where the next big site is coming from,” he says.
The planning ups and downs of the Coventry Gateway proposals – 260 acres in two plots, promoted by Roxhill – show the obstacles, says Lloyd.
Developers say they recognise that there is a problem – and they are pushing on with speculative development.
Robin Woodbridge, head of Prologis in the Midlands, is watching Peddimore with interest, but is still pondering new speculative units of his own. Around 210,000 sq ft at Fradley and two units at Ryton – 145,000 sq ft and 327,000 sq ft – are being considered. “We haven’t yet pressed the button,” says Woodbridge.
For developers like Prologis, the market is not so much starved of floorspace, as oversupplied in some sectors and size ranges. “Availability of new units in the 200,000-250,000 sq ft range in some markets is good. We’d like to see more of this taken up before we build,” says Woodbridge.
Choice
Savills’ Charlie Spicer makes the same point: if you want a 150,000-200,000 sq ft unit in the Rugby-Magna Park area, you have a choice. “Oversupply,” he says.
Developers’ minds are focusing on the opportunities for mega-sheds. Spicer says his office has handled enquiries amounting to 2m sq ft in the 48 hours before he spoke to EG. Two of those requirements – both online retail – were over 600,000 sq ft. This bodes extremely well for Peddimore.
Other developers are equally cheered. Barwood Capital, which is funding the 100,075 sq ft Birmingham 100 development at Walsall Road, is looking forward to a “brisk” letting, says Barwood director Ed Henson. Quoting rents are £6.50 per sq ft.
“There are developments at Hams Hall and the Hub, but we’re confident occupiers will come when there’s not a lot of new kit coming onto the market,” says Henson. “The market dynamic is fantastic.”
Jonathan Priestley, director at Baytree Logistics Properties, the pan-European logistics and industrial development platform of AXA Investment Managers – Real Assets, is also eyeing up the west Midlands.
“We are considering the West Midlands for sure,” he says. ”There are parts of the market undersupplied, looking at the 30,000-250,000 sq ft range.” Watch this space, Priestley hints.
However, for occupiers whose business life is stuck on hold thanks to today’s shortage of industrial floorspace, there are no quick or easy answers.
“This is what the modern world is like,” says Cushman’s Lloyd.
Stuck on hold is the new normal.
Peddimore
The hunt is on for a development partner for Peddimore, the 150-acre industrial site north east of Birmingham.
The site has the potential to accommodate around 2.9m sq ft of industrial floorspace, one of the most significant industrial opportunities in the UK.
Peddimore forms part of the main industrial corridor in Birmingham, which is already home to the likes of Jaguar Land Rover, extending eastwards along Heartlands Parkway to Midpoint Park.
The council envisages up to 11 new buildings will be created, individually ranging in size from 80,730 sq ft to 592,000 sq ft.
The developer selection process will begin in June, with a developer chosen by early 2018.
National problem
Shortage of new industrial floorspace is a national problem. Savills calculates that just 17 new speculative schemes are underway, amounting to 3.8m sq ft – down by more than half compared with last year. Overall, supply has fallen by up to 20% in the past 12 months and now stands at just 26.4m sq ft across the UK.
While supply drops, take-up soars. According to Savills, the UK big box warehouse market (units of 100,000 sq ft or more) saw the highest level of take-up ever recorded in 2016, hitting 34.6m sq ft by the end of the year.
Research director Kevin Mofid says: “The West Midlands is in a relatively worse supply position than other regions, but it’s a national problem. The land is mostly there but developers are mindful of the winder economy and do not want to flood the market.”
Midlands industrial by numbers
4.4m sq ft
total big shed availability in the Midlands
1.65m sq ft
speculative floorspace due for completion by autumn 2017
5 months
industrial supply is sufficient to meet demand for five months
11.2m sq ft
Midlands take-up in 2016
8.9m sq ft
five year average Midlands take-up
Source: GVA
David Thame
